tv The Communicators CSPAN November 29, 2014 6:30pm-7:01pm EST
>> "zero to one" refers to an innovation or doing anything new where you do the first thing of its kind. the first word processor, first smartphone, first car, first plane. it has a connotation of breakthrough innovation that is a quantum leap rather than a small, incremental innovation. my book is about how as a society we need to be innovating more and really significant innovations that move the dial are the breakthrough. >> is silicon valley a zero to one, does it have a zero to one mindset? >> there is definitely silicon valley at this point is the center of innovation in the u.s. and i would argue the center of innovation globally. there are certainly a number of companies that have involved these significant breakthroughs.
i would say google, amazon, facebook are significant, apple with the iphone. there's always a bias to make things incremental. i would say these successful companies in silicon are all zero to one. most companies and up being much less valuable. a pet food company, the solar panel company is not a zero to one, that's a copy of other things. that moves the dial much less. >> peter thiel, how is your company paypal zero to one? >> it was the first one to combine e-mail with money, a sort of breakthrough product idea and then it turned out that to make the product work you had to solve tricky fraud issues. so that people could transact in a way that was fast, easy, and secure and was definitely
the first of its kind to move -- and a group very quickly and -- and it grew very quickly and it represented a real breakthrough. it is often, one measure i get for these companies are things where you have an order of magnitude improvement on some important dimension. amazon had more than 10 times as many books as the next biggest book store. paypal, the alternative was to send checks to these ebay power sellers which took 7-10 days. with paypal, you got the money through a much faster process. >> where did you come up with the idea of online payments? >> well, it is often not the -- not that you come up with the whole idea in a single, flash inspiration. i was interested in this question a digital currency, all of these ways of the nature of money and how could it be shifted. we focus on intersection of
topography and money. and then in the course of a year, all of these different challenges and struggles. even with the new technology on how will people adopted? e-mail was something everybody already had and we should probably link money with e-mail. i think a lot of these companies, the idea that are not fully formed on day one but a subject people are extremely passionate about and they think about really hard and the prices really define the business model and the idea to come up with a great strategy. >> in your book, you write when i was running paypal in late 1999, i was scared on my with -- i was scared out of my wits not because i do not believe in our company but because us and like everyone else in the valley was ready to believe anything at all. >> certainly there was an
extraordinary level in the tech industry in the late 1990's which we are suffering from a hangover of that. people are skeptical of technology and silicon valley and the bubble was driven by unrealistic expectations about growth and sometimes unrealistic about cash flows and basically the collapsing and the next three years as the nasdaq went 5000 to over 1000. people often ask if we have a bubble today in silicon valley and i do not think that is the case. these bubbles whether tech stocks in the 1990's or housing and finance, these bubbles are psychosocial phenomenon in which we need to get the public as a whole involved. the public was involved in the tech bubble in the 1990's. you had 300 ipo's. today, 2013, 2014, the public is far less involved in the ipo's are happening much later. part of it is the tech companies themselves do not want to go public and want to grow the business as privately and
because the public is not involved, i do not think we have a bubble this time around. the what is happening this time is a long tumble i would expect to go on for many years to come. >> you write the importance of future profits is counterintuitive even in silicon valley for a company to be valuable, it must grow and endure, but many entrepreneurs focus on short-term growth. >> well, we did this exercise at paypal in march of 2001 and look at future discounted cash flows and concluded that 3/4 of market capitalization of the value of paypal as of 2001 and 2011 and beyond and that sort of mass is is true. most of the value is a decade or
more in the future. investors and entrepreneurs tend to be very focus on the growth bearable because that is what we measure in the near-term. how much do we grow in the past week and a quarter? the question is will your company be around in a decade is more qualitative but more important. the durability of this question, whyyou have a permanent, will your company be something of near permanent value, is extremely important for a n entrepreneur and investor to think about. >> what makes for a good, successful venture capitalist mindset? >> well, i almost have a somewhat approach to the conventional wisdom. the conventional wisdom of venture capitalist is a portfolio theory and invest in a lot of different companies and treat them as they were lottery tickets of one sort or another. i think it's a bad way to treat people. you never want to treat the entrepreneurs as lottery tickets.
it is a bad way to invest because when we think things are a lottery ticket, small probability with a big payoff, multiply a small number with a big number like that you end up with a small number. when you think of terms in lottery tickets, you lock yourself into losing. what i have tried to do over the years is only invest in things where i have very high levels of conviction, ends up being a more concentrated approach. and so instead of do not put all your eggs in one basket, it is good to put your eggs in one basket that you understand and regard really well. >> what convinced you to invest early on in facebook? >> well, facebook in 2004 was something of a no-brainer. the site was already at 20 colleges and had 100,000 users and they needed money to go to war colleges. people were skeptical of social networking.
it was a reasonable valuation for something that had tremendous momentum. in today's context, it was valued at $5 million. in today's context, a company with similar metrics would be valued at easily $100 million. people were simply too pessimistic about the internet generally and an acute sense of the hangover from the 1990's. the engineering team at facebook was really quite good. they were going to build its global product. zuckerberg was focused and passionate about it. and it turned out to be a great investment, much better than i would've thought. i thought it was a good investment but never would've thought it would become a $200 billion company. >> peter thiel, where did this book -- from where did this book
stem? a class you taught at stanford? >> the "zero to one" book came from a class i taught at stanford in 2012. it was basically -- everything i have learned about technology, business, startups in a single course. one of the students in the course took these notes and posted them on the internet and 300,000 -- 400,000 people read the notes and we thought that it would be a great follow-up project to distill these notes and proven them and put them in a 200 page book which is what we ended up doing. >> on the first day of class, what did you want your students to know? >> there is no single -- there is probably no single lesson. there are many different lessons to teach people. i would say that the single overarching theme of my class and of the book is that people
should rethink competition. most business books tell you how to compete more effectively. mine tells you perhaps you should not compete at all and you should aim for something like a monopoly. 80 -- a zeroe -- to one company is such a breakthrough that you have no competition at all. and i think we often overrate competition for all sorts of reasons. we find it appealing to do things other people are doing. the classic example of a bad business is to start a restaurant which is brutal competition, no one ever makes money. the great examples are businesses that offer no one is even thought of doing. like google and search and facebook and social networking. they ended up being incredibly valuable. i tried to get it these produce -- through these contrarian questions. what a great businesses no one is building? or an interview question, tell
me something that is true that very few people agree with you on. it turns out to be a shockingly hard interview question because in an interview, people figure out to come up with something really brilliant. even with people have answers , it isy think are true often uncomfortable to articulate these truths. some insight and a great deal of current rage to come -- courage to come up with these ideas. >> the return to this question in "zero to one" and one of the example questions is that god does not exist or there is no god. you say it is a bad answer to the question. why is that? answer that god does exist or does not exist is a bad answer because there are are two different size of a conventional debate.
there are a lot of people on both sides of that debate. i think, that really interesting answer are things that are very few people agree. it is not simply a matter of going against conventional wisdom but to come up with something that is true in one way or another. i give my answers. i think that, for example, a monopoly, is underexplored. in a world where people are focused on for those of us in the united states or western europe, the question of technology is more important than globalization. there are or sort of many answers to this question, but never trivial to find. the best creek -- >> the best startups might be less extreme. the biggest difference is cults
are wrong about something important. >> i think a great startup is always united by a sense of what the company is going to do that no one else in the world is doing. mustypal colleague eli said in 2002 that the goal was to be the first company to build rockets powerful enough to send human beings to mars. nobody else in the world thought it was possible, most people would not think it makes sense. it inspired a talented group of rocket scientists to come together and build the company. always, if we do not do it, nobody else would. it is very powerful. it is sort of like the cult where you have privileged knowledge or insight into the
world that is not shared by other people, but in a good that up like a bad cult, knowledge turns out to be true. you work on something that is real or becomes real. critics peter thiel, what is the power law you talk about? of thesebution technology companies. if you look at the tech industry the top companies have a market capitalization of $6 trillion. as big or bigger than all other tech companies combined. up with these radically on equal outcomes in terms of company sizes. the u.s. declaration of independence where all men are crated equal. not all companies are created equal. some end up being vastly more successful than others. as a youth venture capital
investor, the single best investment ends up being worth more than all of the others combined. dynamic. very strange it is an application of the , perhaps, the founders not always the right thing to start a company. you must -- you may be better off with a company that will be successful. the 100 person at google was better off than the average founding ceo of the startup in silicon valley. sometimes, the privileged founding companies we undervalue the potential scale and so we overvalue. it is always worth thinking really hard about whether you will be able to build a great better offmight be joining another company that is doing something truly great. >> you spent quite a time in
your book on u.s. education. is it assisting, is it promoting this entrepreneurship? critic ofbeen a big the u.s. education system, focus a lot on higher education where you have the runaway student debt. have a bubble in higher education and i think it is -- i do not think it is actually helping people do more entrepreneurial or risk-taking things. takeyou graduate, you will a reasonably well-paying job so it will be less likely to do something entrepreneurial or artistic that may paid less. withhere is a big problem the debt and a big problem with the way education generally is somewhat overvalued. the analogy i gave was the
colleges today are in a crisis thelar to the church acted 16th century. they are charging more. the indulgences that the catholic church had. only way tothat the go is to go to yale or jail and if you do not get a diploma, you -- if you do and get a diploma, you will get saved or if you do not, you will go to hell. we have to find a wider range of things for people to do. it will be a world in which there's not a single track, a single path but different things people will be able to do.
>> what did we learn and how significant was the tech bubble of the 1990's? big ands extremely extremely distorting. happensas what often with these things, people learn the wrong lesson. the main lessons people learn was to be less ambitious and less a big projects. and so the aftermath was to push us even more toward incrementalism. and this is to consumer or business to business were the b2b.ords, the aftermath of this tech bubble was to get away from tech.
we had this enormous misallocation of resources. i think we would been better off with a much less. to your stanford class, was it done in the economics department, computer science, which department? >> we did from the computer science department. we thought it would be the best way to reach a lot of the people starting the companies. a strong bias toward engineering, the core of the new tech companies. it was open to people across the board. it got a lot of attention. >> you are quoted in different places as saying we wanted flying cars and we got 140 characters. what does it mean? >> the tagline on our website -- if youcally that
think about the promise of "the jetsons" these fantastic ideas that people had about technology. a sense that twitter is not enough to take our civilization to the next level. i have had this view more generally that when you're relative an era of technological stagnation, with had a lot of innovation. computers, internet, mobile, with had much less innovation in whetherd of atoms, energy, underwater cities, flying cars. all of the things people would've talked about in the 1950's and 1960's. it is reflected in how the word technology does not mean rockets or flying cars. it means information technology. a narrow ring of focus.
a narrow cone of innovation. theink to really improve quality of our society, we need innovation. the hope is that we'll have a widening and in the decade ahead. ?> what is palantir i palantir is a company cofounded in 2004. it is a data analytics company that enables people both in government and large corporations to analyze a lot of the data of national security threat or criminal activity, fraud, helps you with cyber security. comes out of the idea we had at paypal and that a lot of the problems in our world is not going to be solved by humans alone or computers alone.
what you have to do is figure division toget the be right between the two of them. to work human analysts with computers to analyze data. of an underexplored paradigm. the dominant idea we have in the computer world is that computers are substitutes for people. it will replace people in one way or another. areuters and humans different, good at different kinds of things but they keep think to build innovation is not to figure out how to replace getle, but how do we computers and people to work together. that is sort of a general template to be used in different contexts. >> given some of the topic ideas that palantir works with, have
you worked with the federal government? >> will work with a number of three letter agencies in d.c. and law enforcement. very long cycle to break it to the federal space. has had years, palantir some impressive results. >> what makes you a libertarian and why do you donate to republicans? >> it is always hard to characterize one's views politically. i am socially more liberal and fiscally more conservative. have come don't libertarian on a lot lot of different things. in general, i little bit skeptical of how much our political system will fix things. it is very important.
i spent most of my time working on technology where people can really move the dial and make the difference. i find politics interesting and very active practice endlessly frustrating. in practice and endlessly frustrating. >> does washington understands silicon valley? >> i think there is too much regulation and certain areas of technology. one of the reasons why with tracksthis tale of 2 which is very slow in other areas is it cost $100,000 to start a new software company and $1 billion to get a drug through the fda. that's what we have fewer biotech companies.
. is important for what happens in silicon valley. quitek the coulters are different and they do not understand each other terribly well. focused onton, d.c., process which is dominated by lawyers and framework that people with that kind of background brings to ideas. silicon valley is more focus on substance and dominated by engineering it you have a different kind of mindset of how to approach things. one general bias that people have is adept technology is not that important area -- important. i looked at the people in maybe 35 of them have a background in science and the rest of them are really clueless l was not understand.
and solar panels do not work at night. they are uncomfortable about technology and so in general, people want to stay away from here. book, you are a critical about the educational testing system. how did you grade your students at stanford? a single test at the end of the course as well as a presentation you had to give the company they would try to build. i do not think you can avoid testing or grading. think, it becomes a problem when everybody has to do the same thing and is evaluated in the same way. thatnd product is not everyone should be going to the same school or studying the same subject. -- in individual class where you with great people. i do not think you should be
grading people as much as a whole and putting quite as much weight on sat test and standardized tests that are used to track people. >> do you see yourself teaching another class? >> i have done this every few years so i will do at some point in the future. one of the things that is fantastic about teaching is it allows you to pull together an enormous amount of materials and organize it in a way and you hope the students learn a lot. and as a teacher you learn a tremendous amount. i am a critic of the universities, i am not a critic of learning. learning is good. a lot of it is put under the educational rupert but i am a big fan of learning. >> the book is called "zero to is the author.el
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